HPE Closes $8.8 Billion Micro Focus Spin-Off

by CXOtoday News Desk    Sep 04, 2017

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Hewlett Packard Enterprise [HPE] closed the $8.8bn deal to spin off its software business with Micro Focus. The deal, first announced in September 2016, saw HPE selling off its IT management, big data, and security lines to Micro Focus, which will try to make the products more successful than they were under the former HP Inc.

The move was at that time viewed with a mix of relief by analysts, even though some questioned the strategic direction of HPE Chief Executive Meg Whitman. “With the completion of this transaction, HPE has achieved a major milestone in becoming a stronger, more focused company, purpose-built to compete and win in today’s market,” said Whitman. ”And, this transaction will deliver approximately $8.8bn to HPE and its stockholders.”

HPE is desperately trying to lift its stock price, which has been falling in recent months. HPE’s shares have plummeted nearly 40% since the beginning of January as sales of its servers and other data center gear keep declining each quarter as more companies continue to buy on-demand computing resources from businesses like Amazon, Microsoft and Google, a Reuter report said.

Whitman has been trying to nurture HPE back on the right track through multiple major initiatives including splitting the company from its PC and printer sibling HP Inc. in November 2015. At the beginning of this year, HPE said it would buy data center hardware startup Simplivity for $650 million, followed by the $1 billion purchase of storage hardware startup Nimble Storage in March.

Chris Hsu, formerly COO of HPE and Executive Vice President and General Manager of HPE Software, was appointed CEO of Micro Focus.  The deal makes Micro Focus the biggest tech company in the United Kingdom. “By acquiring HPE’s software business—which includes data analytics, security, and application monitoring softare—Micro Focus has overtaken UK’s biggest business software company Sage Group,” according to Bloomberg News.

With more than 5,800 employees in R&D, the combined company helps solve the most complex technology problems for customers, delivering world-class, enterprise-scale solutions in key areas including DevOps, hybrid IT, security and risk management and predictive analysis.

“It is our mission to provide a best-in-class portfolio of enterprise-grade scalable software with analytics built in, and put customers at the center of our innovation building high-quality products that our teams can be proud of,” added Hsu. “Driven by this mission, Micro Focus is uniquely positioned to help customers and partners address opportunities and challenges within the new hybrid model for enterprise IT – from mainframe to mobile to cloud.”

These big transactions are intended to revive HPE amid a rapidly changing technology landscape, but they have yet to make a big impact with HPE missing its sales projections for four straight quarters, as Bloomberg News noted.

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Whitman has stated multiple times that she doesn’t intend to leave HPE until she believes the company is healthy enough, even though she was recently negotiating to become CEO of ride-sharing company Uber.

For HPE, the spinoff comes four days before the company reports its third-quarter results. Analysts have forecast HPE to earn 26 cents a share, on $7.49 billion in sales, compared with a profit of 49 cents a share, on $12.21 billion in revenue, a year ago.

The spin-off also marks the end of HP’s unhappy marriage with Autonomy, which it acquired for $11 billion in a futile effort to transform HP into an enterprise software leader. The much-criticized deal resulted in the unwelcome exit of CEO Leo Apotheker and later sued Michael Lynch and Sushovan Hussain, once the chief executive and chief financial officers of Autonomy, respectively. The ongoing legal case remains the responsibility of HPE, the company said.

“Autonomy was a distraction - a big one - and HPE can now stop spending its energy on defending its decision and dealing with the aftermath,” said Glenn O’Donnell, a Forrester Research analyst.

According to a recent report published by the Harvard Business Review, “Business leaders anticipate that even more of their applications will reside in various third-party data centers in the near future. But critical legacy applications may not be going anywhere for some time. So orchestrating a mix of systems will become even more critical. Hybrid IT will be the dominant approach—and developing robust hybrid IT capabilities will be a competitive advantage.”

“The challenge now for HPE will be to quickly build new software for mixed data center environments, the news site quoted Tom Bittman, an analyst with Gartner.